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What Is a Paycard and How Does It Work?

  • Payroll
  • Article
  • 6 min. Read
  • Last Updated: 05/07/2024

an employee uses a paycard from their employer

Table of Contents

A paycard is a paperless method for paying your employees. Generally speaking, it resembles a plastic card, not unlike a credit or debit card (though its purpose is different). Also known as payroll cards, these can be ideal payroll solutions for businesses wishing to offer one or more additional ways of paying your workers, particularly those who don't have a bank account for direct deposit.

How Do Employee Paycards Work?

Employers usually create and implement a payroll card program with a third-party provider. Then, they enroll employees choosing this option, and the provider issues payroll cards. This form of electronic payment is linked to a bank that permits the transfer of funds, but this link is between the paycard vendor and a bank, not between the employee and the bank. Instead of receiving a paper check, employees can use paycards to obtain cash and pay monthly expenses up to the limit of their wages. Paycards function like debit cards when making purchases, paying bills, or withdrawing cash. Paycards allow the holder to use only the funds loaded on them.

Employees can access funds from the payroll cards nearly instantaneously. Also, money can be attached to the same paycard with each employee's pay cycle, so it's necessary only to provide a single card during the life cycle of their employment.

What Is an Unbanked Employee?

An unbanked employee is an individual who does not have a checking or savings account at a bank or credit union. According to the latest figures available from the U.S. Federal Deposit Insurance Corporation, "an estimated 4.5 percent of U.S. households (approximately 5.9 million) were 'unbanked' in 2021," and this 4.5 percent rate marks "the lowest since the survey began in 2009."

With payroll cards, unbanked employees are spared the hassle (and additional cost) of cashing a physical paycheck.

What Are Payroll Card Pros and Cons?

Payroll cards for employees can be a convenient option for unbanked workers and their employers. For one thing, paycards are a practical "green" alternative to paper checks. Here are some payroll card pros and cons:

Paycard Benefits

  • Since payroll cards require a PIN, an added layer of security helps ensure that access to employee funds won't be easily compromised.
  • All employees may be considered candidates for the electronic transfer of funds, regardless of their relationship with a bank.
  • Generally speaking, the cost of this payment option to employers is less than that of issuing paper checks. Efficiency is further enhanced as payment can be authorized, but employers don't have to physically present or mail paychecks to unbanked employees.
  • While expenditures related to setting up a payroll card system differ among third-party vendors, upfront fees are typically minimal.

Paycard Disadvantages

  • Employees may incur fees for certain paycard-related reasons. The law requires employees to be informed of these potential costs.
  • It's up to each employer to fully outline the purpose and use of paycards to their workforce to avoid misunderstandings related to the process.
  • Employers must be aware of any regulatory and legal matters relating to payroll cards. Compliance isn't difficult, but it can't be ignored.

Commonly Asked Questions About Payroll Cards

Here are frequently asked questions concerning the use of paycards for employees:

  • Why Do Employers Use Paycards?

    Why Do Employers Use Paycards?

    There are considerable potential savings for employers in using payroll cards, ranging from reduced expenses related to manual checks, lost or stolen checks, and the production and handling of paychecks. In addition to saving time, money, and other resources by going paperless, employers use payroll cards to assist employees who don't have a traditional savings or checking account.

  • Where Can Employees Use Paycards?

    Where Can Employees Use Paycards?

    Employees can cash out wages from paycards at a bank, ATM, or other point-of-service location offering cash back (e.g., grocery stores). Employees may also be able to pay bills over the phone using their paycard number or authorize electronic bill pay to specified companies, such as a property leasing or mobile phone company.

    Employees can use paycards at any merchant that accepts debit cards. This includes grocery stores, gas stations, and retail shops.

  • How Do Employees Receive Paycards?

    How Do Employees Receive Paycards?

    The funds an employee earns appear on a paycard when funds are loaded into the payroll card account.

  • What Is the Difference Between a Payroll Card and a Debit Card?

    What Is the Difference Between a Payroll Card and a Debit Card?

    A payroll card is like an employee's debit card, with one key difference. Payroll cards are not linked to an employee bank account but operate with a separate account, usually offered by a third-party provider. This is the crucial distinction between a paycard and an employee debit card.

  • Are There Any Alternatives to Paycards?

    Are There Any Alternatives to Paycards?

    The primary alternatives to paycards remain paper checks and direct deposits into an employee's bank account. It may be helpful for employers to offer all options — paper checks, direct deposit, and paycards — and to explain them to employees so that they can make informed decisions about their pay options.

  • Can Employers Mandate That Employees Accept Paycards?

    Can Employers Mandate That Employees Accept Paycards?

    No. Federal law requires employers to offer alternative payment methods and prohibits employers from providing only paycards to unbanked employees. Some states require written authorization from the employee to pay wages via a payroll card.

  • If Employers Give Employees Paycards, Do They Need To Provide Pay Stub Information?

    If Employers Give Employees Paycards, Do They Need To Provide Pay Stub Information?

    Check on any state laws mandating the delivery of pay stubs (wage statements). If employers use paycards or direct deposit, they may still be required by state law to provide employees with a statement showing their wages, deductions, and other required information.

  • Do Paycards Have Fees?

    Do Paycards Have Fees?

    Generally, employees don't incur costs by using a payroll card. By law, employees must be able to access their wages in full without any fees. This can be done by presenting the card to a bank teller, using an ATM associated with the card issuer, paying bills by telephone, or using the card for point-of-sale purchases.

    However, employees may encounter fees for electronic fund transfers or for using ATMs not in the issuer's network. Fees may also be charged for replacement cards, balance inquiries, or other reasons.

  • Can Paycards Be Overdrafted?

    Can Paycards Be Overdrafted?

    Paycards function like debit cards, allowing holders to use only loaded funds. Employers can use a payroll card program that permits overdrafts to employees. However, this usually is not a good option due to overdraft fees.

  • What Happens if Paycards Are Lost or Stolen?

    What Happens if Paycards Are Lost or Stolen?

    A replacement card can be issued if a paycard is lost or stolen. In such a case, the employee should notify the employer, and then the employer should immediately inform the provider. In most cases, the employee won't be penalized for unauthorized card use if the problem is reported to the issuer.

  • Are Paycards Only for Unbanked Employees?

    Are Paycards Only for Unbanked Employees?

    Employees can use debit cards tied to their own bank accounts in the same way as paycards (and often with fewer fees). Many employers find direct deposit the most efficient and least costly payment method. However, paycards can be used for banked employees to set aside a certain portion of pay as a budgeting tool. In fact, paycards can be issued to family members (e.g., an employee's college-age child) to shift funds efficiently.

  • Do Paycards Save Employers Money?

    Do Paycards Save Employers Money?

    Paycards can be a money saver for employers. Because payroll can be processed by having the bank reload pay cards with wages for the current pay period, the employer can avoid expenses associated with issuing paper checks, including costs for re-issuing lost checks and postage for mailing. The savings may not be dramatic, but they can add up over time.

  • Can Paycards Be Managed Online?

    Can Paycards Be Managed Online?

    Employers can manage paycards online via computer or phone 24/7 through online portals and applications. The funding is authorized electronically so that employee payments can be made despite extenuating circumstances, such as storms, natural disasters, or other emergencies.

    Similarly, employees can manage their paycards online by viewing account balances, reviewing transactions, and authorizing online bill pay (e.g., to a utility).

  • Can Paycards Be Issued Instantly?

    Can Paycards Be Issued Instantly?

    Employers may be able to have unused paycards ("blanks") on hand and issue one to a new employee upon hiring. This can help an unbanked employee to receive their wages on time.

    Employers can also use paycards to pay final wages immediately.

  • Will Paycards Affect Employees’ Credit?

    Will Paycards Affect Employees’ Credit?

    Paycards are like any other prepaid card. It has no impact on an employee's credit score.

  • Can Employees Input Additional Funds Into Their Paycards?

    Can Employees Input Additional Funds Into Their Paycards?

    It's possible to add funds to these paycards through direct deposit. Some retail locations permit the loading of additional funds as well.

A Useful Addition to Your Payroll Solutions

Paycards can be a valuable addition to your payroll solutions. With the proper guidance and information, employees may benefit from the flexibility and convenience of having a paycard as a payment option.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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